The expected rate of return on Research Industries is twice the 12 percent expected rate of return from the market. What is Research's beta if the risk-free rate is 6 percent?
A) 2
B) 3
C) 4
D) 5
E) 6

Question

Quizplus · Accepted Answer

The expected return on Research Industries is 24% (twice the market's 12%). Using the CAPM formula: Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate), we have 24% = 6% + Beta * (12% - 6%). Solving for Beta gives Beta = 3.

The Expected Rate of Return on Research Industries Is Twice